Paper #1307

Title:

Social capital, government expenditures, and growth

Authors:

Giacomo A. M. Ponzetto and Ugo Troiano

Date:

February 2012 (Revised: January 2024)

Abstract:

This paper shows that social capital increases economic growth by raising government investment in human capital through better political incentives and selection. We provide empirical evidence that a greater share of output is spent on public education where social capital is higher, both across countries and across U.S. states. We develop a therotical model of stochastic endogenous growth with imperfect political agency. Only some people correctly anticipate the future returns to current spending on public education. Greater social diffusion of information makes this knowledge more widespread among voters. As a result, social capital alleviates myopic political incentives to underinvest in human capital. It also helps voters select politicians who ensure high productivity in public education. Through this mechanism, we show that social capital raises the equilibrium growth rate of output and reduces its volatility.

Keywords:

Social Capital, Education Expenditures, Economic Growth, Elections, Government Expenditures, Imperfect Information

JEL codes:

D72, D83, H52, I22, I25, O43, Z13

Area of Research:

Macroeconomics and International Economics

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